For Foreign Buyers, Times Are Getting Tougher

Governments across the globe are limiting purchases of properties from non-residents

After seeing an influx of foreign investment in real estate, which contributed to an increase in residential prices to levels that made homeownership unaffordable to many locals, Canada is now taking a closer look at money coming from abroad to better understand its impact on the residential market. Meanwhile, Vancouver’s mayor Gregor Robertson is considering the introduction of a tax on vacant homes.

The proposal represents the latest example of a controlling measure to negatively impact wealthy individuals wishing to buy a property outside their home countries.

Governments from the U.S. to Australia to Great Britain are imposing or considering new rules that would make owning a leisure home more difficult for foreigners.

The reasons for the barriers are diverse, with some countries trying to make homeownership more accessible and affordable to locals, and others fighting against real estate investments being used to launder money.

Here, a roundup of controlling measures or barriers to foreign homeownership.

United States

In March, the U.S. Treasury Department put in place a six-month rule that requires title insurance companies to disclose the identity of the people behind shell companies used in all-cash purchases of homes priced at more than $3 million in Manhattan and over $1 million in Miami-Dade County, Florida. The measure, said the government, is meant to combat “money laundering in the real estate sector” and could give way “to a formal rule-making process” after the trial period ends in August.

As of April, buyers of second homes in the United Kingdom must pay a 3% tax surcharge, known as “stamp duty,” which comes on top of higher taxes rates on expensive homes introduced in December 2014. The measures and uncertainty about the potential exit of Great Britain from the European Union later this month are weighing on the luxury real estate market.

While amendments to the federal statute on the acquisition of real estate by foreigners, known as Lex Koller, eased restrictions on the purchase of commercial property, Switzerland continues to heavily limit homeownership by non-residents and allows it only after the buyer obtains authorization from the government. Furthermore, properties must be in an area designated by the local authorities as a holiday resort, and municipalities can implement their own restrictions, such as the type of property available to foreigners and a number of annual sales.

Australia

A broad tax-related investigation unearthed hundreds of cases of alleged breaches of homeownership laws by international investors in Australia last year, amid skyrocketing prices that have made houses unaffordable to many Australians. Several foreign nationals have been ordered to sell their properties and more penalties and restrictions could be on the way. Under the current law, foreign buyers are not allowed to buy existing residential property in the country, so new developments are their only options.

New Zealand is known for its “open-door” housing policy, which doesn’t include a stamp duty, capital gains taxes or visa requirements. However, the government introduced last year a tax on second homes purchased and resold within two years and a requirement for non-resident international buyers to apply for a government identification number for tax purposes. According to a report by Christie’s International Real Estate, over 1,000 foreigners applied in the first quarter of 2016. Separately, a number of local banks have stopped issuing home loans to foreign buyers, saying the move will reduce their risk.

Mexico

Foreigners looking to buy real estate in Mexico need a permit from the Department of Foreign Affairs. And in order to purchase in the “restricted zone,” within 100 kilometers (about 62 miles) of national borders or 50 kilometers of coastlines—where the most desirable homes tend to be —they need a bank trusteeship, known as a “fideicomiso.” A bill enabling international buyers to claim prime properties in the “restricted zone” was approved in 2013 by the legislature’s lower house but has since stalled in the Senate and it looks like the status quo will remain.